James Millard says investors can maintain sufficient funds through the five steps of: define, declutter, develop, defend and deliver.
James is a renowned financial advisor, business owner of Sufficient Funds, and author of the newly published book Insufficient Funds: Make the Right Money Decisions to Bring Your Big Plans to Life.
On the Get Invested podcast, James joined KnowHow founder Bushy Martin to discuss the five steps to achieving sufficiency and living your ideal lifestyle.
Step 1 to sufficient funds: Define
For James, the first step is about defining what your ideal lifestyle looks like, which allows you to make conscious money decisions to fulfil these goals.
“A lot of people don’t have the foresight around what they want their ideal life to look like. So you’ve got to start dealing with you, and that just really is the idea of looking internally and doing a bit of self-reflection and really thinking about, well, what do I want to achieve? So dealing with you, and that’s really a mindset. Now thinking bigger is the next one, and this is the challenge that a lot of people have. And so you really need to force yourself through, okay, well if my dream life was just paying off the mortgage and rolling into retirement one day, and you haven’t given a lot of thought to what maybe those fence posts in between all of that look like, this is where that permission to dream is what we try and give our clients. Like our vision for you is way higher than what you’ve got for you at the moment. We’ve got to get you up there. And that’s different for different people, right? But it’s just starting to take those steps,” he said.
“So it’s really about saying, look you’ve done a lot of dreaming, but it means nothing if you can’t actually take a step. So really break it right down and pick one thing that you’re going to start to work towards. Now as we all know, it’s way easier said than done, but take one little step a few days in a row, and all of a sudden that’s how you create habits and that’s how you build momentum.”
Step 2 to sufficient funds: Declutter
The second step is about taking a minimalist view and removing the clutter from your financial life.
“This part is about creating a really good what we call a spending plan. So you’ve got your launch pad built, and what this is is about setting up those initial good habits and structures around making sure things work properly. So dealing with debt, and that’s not having a $0 mortgage, right? That’s fine. It’s okay to have a mortgage, but don’t have a lot of personal credit cards and those types of things hanging over your head. If you’ve got that, you need to get there first and work through that,” James said.
“The second part of that is the key part or what we call the spending plan, which starts with a budget. And then you’re going through a process of categorising spending, then you’ve got your account structure that you set up to align with all of that, and ultimately automating that to keep your dirty mitts off it. So essentially it’s all flowing and it’s driven at your goals. It’s driven at everything you’ve just defined in the first section, and then you’re creating a plan around that to bring it all together.”
Step 3 to sufficient funds: Develop
The next stage is to develop a growth strategy. James recommended that investors use the ‘mad stacks’ strategy to achieve this.
“So this starts with that idea of okay, you’ve got your budget, you know what’s left over, and really at a basic level, where does it go? So you’ve got some money left over, what do you do with it? So the four stacks of sufficient funds are debts, savings, investment, and super. It’s really simple, and at a higher level, most people are already dealing with at least two of these. But for a lot of people, every single one of those is highly relevant. The challenge is, how do you get the balance right?” he said.
“So again, we talked about that spending plan, and hopefully you’ve dealt with any bad debt so to speak, because you might have a mortgage or a car loan and that’s totally fine. But if you have some money left over, are you funnelling it into that? Are you paying more off that loan? And then with a savings side of things in the bank, everyone needs a good emergency or rainy day fund. So have that squared away, have that siloed. You might want cash for your upcoming holiday or for some other short term needs. And then in theory, and this is easier said than done, the rest doesn’t necessarily need to be in the bank. And you’ll likely, depending on timing, timeframe and how long you’ve got until you might need that money, you’re then able to take those biggest steps around investment, and that could be investing in shares, investing in property, investing in all sorts of other things. And then should any of it go into super? And that’s a question that’s often answered with a yes, no matter how old you are, but it’s just about getting that right.”
Step 4 to sufficient funds: Defend
Step four is about investors ensuring they are prepared for the unexpected and protected from any worst case scenarios which may occur.
“Defend is really making sure that you’ve got everything set up in a way that if things go wrong, you should hopefully be okay. And that’s the emergency fund. Now if you’re coming back from having to use that but you’re back on track, it’s important to stop everything and rebuild that. The investment strategy can go on hold if it needs to, but just get that back up because that’s a foundational point,” James said.
“And then the defend part covers a lot of personal stuff, such as bringing kids into the world. So for example, we went through IVF and we had all sorts of challenges bringing our second child into the world. So this is one of those times where things may not go as planned. And if they don’t, what are those costs? How do we start a family and what are the steps? And that goes all the way through to day-care, returning to work, schooling, that side of things.
“And then really crucially, the least sexy part of financial planning is the insurance side of things, where we talk about really critical things like life insurance, disability cover, trauma cover, and income protection, and how they fit into your world.”
Step 5 to sufficient funds: Deliver
Finally, ‘deliver’ addresses an investor’s commitment and motivation to this process and ultimately achieving their goals.
“So this is really where it all comes together, and it’s where you start to think, okay, we’ve got all these foundational pieces, the strategies in place, investments are pumping away, got our protection plan, everything we’ve just talked about. And it’s then about saying, well, what else? And so making sure that you’re staying motivated. We talk about things like donations. This is something that lots of our clients are starting to talk about is, how do we start to factor that into our life if we haven’t already? So bringing that life factor back into, okay, we’ve got the money, it’s working for us, things are happening, it’s okay. We’ve got some spare cash, what do we do with it? And that process is really about you digging deep again within yourself and thinking about what are my true values, and is there anything else that I’ve missed?” James said.
“So the deliver process is kind of going back through and saying, alright it’s been a little while maybe since we defined the goals and gone through all of this process and set things up. Now, is it still all relevant? And so I guess it’s really understanding that, okay, you defined things a little while ago, but they’re going to change over and over and over again. So we call it redefining sufficient. So be on your toes when you hit a milestone, take it off the list. If it was getting married or buying the property, absolutely celebrate it and celebrate all the wins, but then move onto, what’s the next?”
Listen to the full interview here.
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